By: Staff Writer
July 19, Colombo (LNW): Effective July 18, 2025, electric and fuel vehicle loan facilities face significant curbs
In a significant policy shift aimed at curbing financial sector risks and promoting prudent lending, the Central Bank of Sri Lanka (CBSL) has issued new Directions to tighten the loan-to-value (LTV) ratio limits on vehicle-related credit facilities.
The new rules, which came into force on July 18, 2025, apply to all Licensed Commercial Banks, Licensed Specialised Banks, Licensed Finance Companies (LFCs), and Registered Finance Leasing Establishments (RFLEs). The CBSL, acting as the country’s Macroprudential Authority, said the move is part of its broader strategy to strengthen macro-financial stability and harmonise lending practices across institutions.
Under the revised guidelines, the maximum allowable loan component for various categories of vehicles has been scaled back from earlier thresholds, including those granted under the 2018 directions. Notably, electric commercial vehicles, which were previously eligible for up to 90% financing, are now capped at 80%. Meanwhile, loan limits for other vehicle types have been significantly curtailed:
Motor cars, SUVs, and vans: capped at 60% of the vehicle’s value
Three-wheelers: capped at 50%
Other vehicles: capped at 70%
The CBSL clarified that the credit extended for registered vehicles that have been in use in Sri Lanka for more than one year after their first registration must not exceed 70% of the vehicle’s value.
For unregistered vehicles and those registered but used for less than one year in Sri Lanka, stricter caps apply, though specific percentage breakdowns for each vehicle type under this category are yet to be detailed in the current release.
The Central Bank emphasized that the revised policy is designed to harmonize existing discrepancies in LTV practices between different financial institutions and reinforce disciplined credit allocation. It also aims to prevent overheating in the vehicle credit market and reduce the buildup of systemic vulnerabilities in the financial system.
Analysts interpret this move as a signal of CBSL’s continued commitment to macroeconomic stability amid growing demand for vehicle loans, especially in light of recent economic recovery signs. Financial institutions are now expected to recalibrate their vehicle loan portfolios and credit appraisal processes in line with the new Directions.
With the automotive market already facing pressures from import restrictions and cost-of-living concerns, the tightened LTV norms are likely to dampen demand further in the short term. However, CBSL maintains that these prudent measures are necessary to ensure sustainable growth in the financial and transport sectors.
